The data reinforces the country’s once-cool housing market and could mark the next phase in the Federal Reserve’s aggressive campaign to cut sharply rising prices. Central bankers are raising the pace of lending to businesses and households, which is expected to reduce inflation. But the Fed’s manipulation risks plunging the country into recession and consumers — who have less purchasing power as a result — out of the housing market.
“The decline in housing affordability continues to weigh on home buyers,” said Lawrence Yun, chief economist at NAAR. “Both mortgage rates and house prices have increased significantly in a short period of time.”
Mortgage demand fell more than 6 percent last week, to the lowest level since 2000, according to data published by the Loan Bankers Association. The median price on an existing single-family home was more than $423,000 in June, according to the National Group of Realtors, up more than 13 percent from a year earlier.
Joel Kahn, vice president of economic and industry forecasting, said: “Purchasing activity has slowed for both conventional and government loans, as a weak economic outlook, high inflation and ongoing inflation challenges are affecting buyer demand.” “The recent decline in purchase applications is consistent with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”
The corona virus outbreak, geopolitical turmoil and many other issues have created a mixed economy. Hiring is slowing but still very strong. Inflation is at its highest level in 40 years, but it is not inhibiting spending. Many economists predict a recession this year or next.
Rising costs are shaping spending habits and forcing many families to spend more of their household budgets on household items such as housing, gasoline and groceries. Gas prices for Americans were 3.6 percent higher than they were in May, for example, when the national average for a gallon of gas breached $5.
Mortgage rates have risen sharply since the Federal Reserve began raising interest rates in March. The central bank has already raised the injection three times by 2022 and has made clear that further increases are coming from July 27.
According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 5.5 percent, up from 2.6 percentage points a year ago. – A difference that can add hundreds of dollars to your monthly loan payment. took off It also coincides with a flat stock market and high prices for everything, making saving for a down payment even more difficult. The resulting squeeze on affordability locks in buyers and results in fewer offers.
“Existing home sales continue to slide to multi-decade lows as the consumer pulls back,” said Peter Eisel, head of portfolio management at Commonwealth Financial Network. Budgets are tighter than ever as consumers battle runaway inflation, and housing is one of the areas most likely to fall victim to declining demand.
The housing market, finally, seems to be cooling down
Sellers will have to adjust to the new landscape by lowering prices to offset higher mortgage rates. But such shifts can take time, as sellers are reluctant to lower their expectations after watching their neighbors shell out top dollar during a pandemic-era housing market.
Meanwhile, current home prices continue to rise. And new homes are being marked as well.
“A year ago, nearly a quarter of new homes were priced below $300,000. Today, it’s 10 percent,” Jerry Conter, chairman of the National Association of Home Builders and a developer from Savannah, Ga., said at a Senate Finance Committee hearing Wednesday.
Still, competitively priced homes sell at a high rate. Properties stayed on the market for 14 days in June, down from 16 days in May and 17 days last summer, NR reports. It’s the shortest time on the market since the group began tracking the measure in 2011. Nearly 9 out of 10 homes sold last month were on the market for less than a month, the data showed.
“Fairly priced homes sell very quickly, but overpriced homes are deterring prospective buyers,” Yun said.
The L.L.L. Jeffrey Roach, Chief Economist at Financial Services, said that despite the poor outlook, most homes will sell quickly. “This shows the demand for home purchases in a sluggish economy,” he said.
Mortgage rates may continue to rise.
Data released by the Bureau of Labor Statistics last week showed that the consumer price index in June was 9.1 percent higher than a year earlier, indicating that inflation has not yet peaked. The Fed is expected to raise interest rates by 0.75 percentage points next week to fight inflation. In turn, homebuyers and other consumers expect more expensive loans to borrow money for cars and other major purchases.
How much mortgage rates rise will depend on whether the Fed pursues rate hikes and whether central banks believe inflation is slowing.
“If consumer inflation continues to rise, mortgage rates will be higher,” Yun said. “Rates are confirmed only when there are signs of high inflation. If inflation is contained, mortgage rates may decrease somewhat.
The looming question is Unexpectedly in the second quarter of 2022, it will be whether the economy shrinks again in the first three months of the year. The next round of GDP figures will be released on July 28.
Kathy Orton contributed to this report.